| Type | Book chapter |
| Title | “New Policy Regime and Small Pharmaceutical Firms in India” |
| Author | Jaya Prakash Pradhan |
| In | K. Das (ed.), Micro and Small Enterprises in India: The Era of Reforms, pp. 227–247 · Routledge, 2011 |
| Focus | India’s small pharma firms — their rise and the new policy challenges |
| Read | Chapter · PDF |
This is a plain-language summary of “New Policy Regime and Small Pharmaceutical Firms in India” (Pradhan, in K. Das (ed.), Micro and Small Enterprises in India: The Era of Reforms, Routledge, 2011).
In short:
- Small firms make up over 90% of India’s pharmaceutical units and have been central to keeping medicines affordable and reaching rural areas.
- They rose on a set of supportive government policies — most of which have since been reversed, leaving them exposed to product patents, costly quality rules, and import competition.
- They also operate at a real disadvantage: roughly 45% of large firms’ labour productivity, with thinner skills and minimal technology investment.
The hidden champions of Indian healthcare
India’s pharmaceutical reputation rests on its big generics exporters — but beneath them sit thousands of small firms that make up more than 90% of the country’s pharmaceutical units. They have done quiet, essential work: keeping drug prices affordable, serving remote and rural markets, employing large numbers of people, and contributing to India’s pharmaceutical self-reliance. This chapter tells their story — and explains why their position has become precarious.
Built up by policy — and now squeezed by it
Their rise was not accidental. It was enabled by a deliberate policy environment that favoured small-scale production. And that is exactly what has changed.
Under the earlier regime, a process-patent system let small firms legally make existing drugs by devising their own manufacturing methods; price-control exemptions, product reservations for small-scale units, and preference in government procurement did the rest. Since the 1990s, that scaffolding has come down. India’s shift to a product-patent regime (under TRIPS) closed off the reverse-engineering route; price-control exemptions were withdrawn; mandatory Good Manufacturing Practice (GMP) standards imposed expensive upgrades; and new tax-free manufacturing zones tilted competition. The very policies that built these firms up are now, in effect, being taken away.
The productivity gap
Even before the new pressures, small firms operated at a structural disadvantage to their larger peers.
Small firms achieve only about 45% of large firms’ labour productivity. They employ fewer skilled workers — roughly 23 per 100 versus 33 in large firms — and invest just 1% of their assets in information technology, running on less sophisticated machinery overall. None of this is fatal on its own, but it leaves little slack to absorb the costs the new policy regime imposes.
The new pressures, up close
Four forces are squeezing hardest. The product-patent regime blocks the reverse-engineering that was these firms’ core competence, forcing them to find new ways to innovate. Global quality standards (GMP) demand capital upgrades many cannot afford. Cheap bulk-drug imports from China have inflicted heavy losses — estimated at around ₹2,500 crore a year (a study-period figure) on small Indian manufacturers. And tax-free zones have created an uneven playing field, pushing some firms to relocate or close.
Paths forward
The chapter is not fatalistic. It points to survival routes — moving into generics as patents expire, investing in IT to lift efficiency, forming innovation clusters to share R&D costs, and taking on contract manufacturing for larger companies. And it sets out a policy agenda to match: a dedicated technology-upgrade fund, a higher excise-duty exemption limit, R&D support targeted specifically at small firms, and special economic zones designed for small pharmaceutical producers.
Why it matters
This is ultimately about more than business survival — it’s about healthcare security. Small pharmaceutical firms help keep essential medicines affordable, reach markets that larger firms overlook, employ many people, and underpin India’s drug self-reliance. Letting them fail quietly would carry costs well beyond the firms themselves.
Read the academic abstract
Small firms dominate the Indian pharmaceutical industry, contributing significantly to national drug production and employment. They have played an important role in enhancing domestic technological capabilities in drug production and have been instrumental in keeping drug prices affordable for the Indian population, including in remote rural areas. The rise of small firms in this sector was facilitated by a set of strategic government policies implemented over past decades — the adoption of a process-patent regime, relaxation of price control and industrial-licensing requirements, reservation of items for exclusive small-scale production, and preference in government procurement. Since the 1990s, the regulatory regime has changed dramatically, with the withdrawal of most favourable policies and the implementation of a long-term product-patent regime, the removal of price-control exemptions, and the introduction of good manufacturing practices. These new policies carry a number of implications for the survival and growth of small pharmaceutical firms today.Cite this chapter
Pradhan, J. P. (2011). New policy regime and small pharmaceutical firms in India. In K. Das (Ed.), Micro and Small Enterprises in India: The Era of Reforms (pp. 227–247). London & New Delhi: Routledge. https://doi.org/10.4324/9780203814062-14
Related on this site
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- How firm size and liberalisation shaped pharma R&D: The Innovation Race: Firm Size and Policy in Indian Pharmaceutical R&D
- The wider innovation struggle of India’s small firms: Motu vs. Patlu: The Innovation Struggle of India’s Small Businesses
